EAGER: Large-Scale Equilibrium Design and Pricing under Complex Government Regulations

Iowa State University, Ames IA

Investigators

Abstract

The objective of this EArly Concept Grant for Exploratory Research (EAGER) award is to address early-stage obstacles to adoption of large-scale, game-theoretic models of engineering-economic systems in the analysis of energy policy. Game-theoretic models of design-and-pricing have the potential to quantitatively integrate models of consumer behavior, technology performance, engineering design decisions, and market competition with complex regulatory policies targeting both consumer and producer behaviors. This potential cannot be realized, however, without understanding how to formulate and simulate realistic game-theoretic models of large engineering-economic systems. This early-stage research will mathematically formulate game-theoretic regulated design-and-pricing models relevant to engineering organizations and state and federal governments; investigate tractable, reliable, and efficient computational methods for simulating such models; and assess the plausibility of the resulting policy forecasts with medium- and large-scale test problems drawn from the automotive industry. Tools from optimization and complementarity theory will be used to allow analysis of multiple non-smooth regulatory policies such as tiered tax credits, performance standards, and/or credit trading programs that currently exist in our nation's energy policy. The theory, software, and computational experience resulting from this research will set the stage for full-scale analysis of difficult energy policy questions in large engineering-economics systems with policies targeting both consumer and producer behaviors. Analysis of complex policy issues will be improved with the use of models that can represent policies applied to both heterogeneous consumers and strategic engineering firms. Large-scale game-theoretic models will also resolve impacts of energy policy options on specific firms or groups of consumers, a resolution currently missing from many quantitative analyses underlying energy policy decisions. This EAGER award will lead directly to future research projects addressing specific, complex policy design questions in important engineering-economic systems such as automotive fuel economy policy and energy efficiency of home appliances and electronics. Research results will be disseminated through conference presentations, articles in academic journals, and publically available software.